Netease Tech, 11/16/11

During Chinese online video site operator Tudou's (Nasdaq: TUDO) Q3 2011 earnings call, CEO Gary Wang disclosed that the site plans to greatly increased investment in content next year. First, Tudou plans to forge more partnerships similar to its recent alliance with Chinese online video site LeTV (Leshi) (300104.SZ), through which Tudou obtained the online broadcasting rights to expensive domestic content. Tudou will heavily invest in broadband in order to improve the user experience and bandwidth for this new content. Secondly, Tudou aims to exchange content with other online video platforms instead of licensing content already acquired by others. Tudou will continue to acquire TV dramas, films, variety shows, cartoons, music shows, and other programming, as well as focus on developing original content to attract viewers and boost Tudou's reputation. User-generated content currently accounts for approximately 45% of Tudou's overall internet traffic.

The majority of TV shows and films available online are licensed by all major online video sites, according to Wang, who said that exclusive broadcasting rights are rare. Even when a site does acquire exclusive rights, it will often attempt to re-license it to other platforms because the costs of acquiring exclusive rights are too high. Tencent (0700.HK) and Youku (NYSE: YOKU) both engage in re-licensing and exchanging licensed content. No single site has licensed all available content, according to Wang, who said LeTV leads the industry but its content library only covers approximately 50% of all content online.

COO Evelyn Wang revealed that Tudou's video advertising is primarily for consumer products from brand advertisers, including fast-moving consumer goods (FMCG), household items, apparel, and shoes. Automobile, IT, and telecom industries are also among Tudou's advertising clients. In Q3 2011, brand advertisers accounted for 85% of ad spend, and revenue was driven primarily by growth of average revenue per advertiser (ARPA) and total number of ad clients. ARPA from overseas clients grew faster than domestic clients.

Evelyn Wang added that Tudou currently has a sales team of 220 people. Tudou expects ad prices will remain stable in Q4 2011, but will rise for some ads in Q1 2012 - particularly video loading ads - by an undetermined amount.

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